(MIS)APPLICATION OF LENIENCY PLUS PROGRAMME IN INDIA: PROBABLE PROBLEMS AND CONCERNS
Updated: May 23
Mohd. Fahad Ansari & Sonu Kumar
Second-year law students at National University of Study and Research in Law, Ranchi
With the completion of discussions on the Report of Competition Law Review Committee (“RCLRC”), the ‘Leniency Plus’ scheme (“the Scheme”) invites discourse on its implementation. It was recently passed by the Lok Sabha through the Competition (Amendment) Bill, 2022. Although, this scheme has been successfully implemented in a number of foreign countries, a few problems can arise if it is implemented in India.
Through this article, the authors first discuss the problems resulting from its implementation to its enforcement. Then the article proposes suggestions which can be adopted to make the scheme more favorable in the Indian context.
II. An Overview of the Leniency Plus Concept vis-à-vis US Approach
In the landmark judgment of Verizon Communications v. Law Offices of Curtis V. Trinko, the Supreme Court of the United States declared cartels as equivalent to the “supreme evil of antitrust.”
Using only punitive means or a “stick” to combat this “supreme evil” was the norm. However, due to the hardship in collecting conclusive evidence of anti-competitive cartel conduct, punitive measures did not always work.
In response, the United States of America (“USA”) came up with a “carrot” approach, with the Leniency Program introduced in 1978. Under this approach, cartel parties have the incentive to confess and provide evidence because they receive immunity, while their co-conspirators can be fully prosecuted. Note that the incentive to confess is increased by the fact that only the first company receives immunity. There have been several cases when co-conspirators found that had they missed the opportunity to qualify for immunity by only a few minutes.
The Leniency Plus Scheme is an extended version of the Leniency Program. Leniency Plus applies when a cartel member does not qualify for immunity in one cartel investigation (because another company confessed first), but is the first to reveal the existence of a second cartel. In that case, the cartelist receives immunity for the second case and also an additional reduction of sanction in the original cartel investigation.
III. Anti-Competitive Conduct as Civil Wrongs as Opposed to Criminal Wrongs in India
The competition law in India only prescribes civil penalties for anti-competitive conduct, as opposed to the USA, where such conduct is also criminally sanctioned. According to Section 27 of the Competition Act, 2002 coupled with Section 48, a cartelist would be liable for only a monetary penalty. Therefore, leniency within the competition law of India covers only monetary fines, not criminal sanctions.
Under Section 46, coupled with the Lesser Penalty Regulations (“LPR”), leniency in India is only in its initial phase. Under Regulation 4 of the LPR, a decrease in penalty would only be given to a leniency applicant if the disclosure made by the cartelist is “vital” and adds a “significant value” to the information which is already in the domain of the Director General (DG) or the Competition Commission of India (“CCI”).
At first, only an enterprise was entitled to this leniency, which was later expanded to cover individuals as well in 2017. It is pertinent to note that a hundred per cent (100%) reduction is given to an enterprise which makes the initial disclosure, while the second and third applicants would only be entitled to a lesser rebatement in the fines after fulfilling the “vital disclosure” criteria.
IV. Probable Problems Resulting from the Implementation in India
One important question is why the RCLRC decided to embrace the leniency plus programme. A closer look at the Report reveals that the whole discourse regarding leniency was based on the assumption that this strategy can potentially motivate applicants to voluntarily reveal the existence of numerous cartels. This would, therefore, save the valuable resources as well as time of the CCI to investigate such incidents. Surprisingly, the report fails to examine the adoption of omnibus questions and penalty-plus facets which have the potential to make the program work more effectively. Therefore, for India, the Report does not mention a working model of leniency plus.
It is imperative to note that ventures that participated in anti-competitive conduct failed to take advantage of the existing leniency scheme. The CCI has received only twenty-one leniency applications till now. A report launched by the CCI itself showed that from 2009-18, it received only seven leniency applications. Compared to other jurisdictions which receive more than ten applications each year, Indian ventures have seldom applied for leniency.
It is also noteworthy that, at times, applying for leniency may be interpreted as a sign of “good faith,” so that an enterprise can benefit from leniency scheme without fulfilling the “vital disclosure” criteria. This is what happened in cartelisation in respect of batteries market case, where a lower fine was imposed on the second and third applicants despite the lack of a “vital” disclosure by them. Low utilisation of leniency, coupled with inconsistency in CCI deciding the cases, raises a significant problem. The question is whether making an addition will be effective when the existing leniency scheme has failed to achieve its objective.
Thirdly, the leniency plus in the USA works on the theory of deterrence via criminal punishments for anti-competitive behaviour as per Section 1 of the Sherman Act, and hence it is the presence of a penalty plus system that the leniency plus program works successfully. Even countries like the Brazil and Canada which have variations of Leniency Plus have a criminal deterrence model which leads to proper enforcement. The current version of the Bill via the addition of Section 46(4) doesn’t incorporate these components which could result in the lack of proper implementation of the program as the penalty plus acts as the stick while the amnesty plus acts as the carrot.
Another issue is the absence of clear definitions for imprecise terms such as ‘significant value’ and ‘vital disclosure’ regarding the type of evidence that leniency applicants need to reveal, which could make the scheme ineffective.
Lastly, the expenses of the CCI might increase once this scheme is implemented. It might be compelled to carry out further investigations and adjudications once the applicants reveal the existence of other cartels. However, since the CCI is facing financial crunches and the shortage of human resources, it is imperative that besides releasing sufficient grants for it, adequate members must also be present in the CCI to effectively implement this scheme.
IV. Probable Solutions
Having defined the significant problems, the authors suggest probable solutions.
Firstly, India can draw inspiration from the optimal leniency program of the United Kingdom (UK) and South Korea. These models provide the applicants with an ‘opt-out’ clause from criminal prosecution which can be effectively applied in India as well.
Moreover, the CCI should discuss coherence and uniformity in the existing leniency scheme before any additional thought is given to the leniency plus.
In addition, since a very low reception rate is evident, the CCI must ensure that the existing leniency scheme is fully exploited by the ventures before executing the leniency plus aspect.
Lastly, the Ministry of Corporate Affairs must also introduce a working model through subordinate legislation. This could be along the lines of the LPR 2009 which provided for the procedure of leniency applications and determination of penalty reductions. Addressing these concerns will provide the Indian Leniency Regime with a great impetus to prompt participation from erring enterprises.
Note: This article has been reviewed and edited by Mr. Steve Levitsky at Stage- II.